VMG Industry

Location:

Belarus

Project number:

41445

Business sector:

Manufacturing and Services

Notice type:

Private

Environmental category:

B

Target board date:

10 Nov 2010

Status:

Complete

PSD disclosed:

05 Oct 2010

Translated version of this PSD: Russian

Project Description

The EBRD is considering providing loans totalling up to €26 million to IOOO VMG Industry to finance the development of a greenfield integrated wood processing complex including a particleboard plant, a furniture plant and a layer-glued product plant in the Free Enterprise Zone Mogilev, eastern Belarus. IKEA Supply AG will act as main off-taker to the project.

Transition Impact

Setting best industry standards in business conduct
The project's main transition impact will derive from setting high standards of business conduct within the wood processing sector in Belarus, which is one of the country’s most important sectors and still in need of wide-scale restructuring. As a supplier to IKEA, the Client will be subject to IKEA's strict supplier Code of Conduct (ICC), and will showcase strict production efficiency, environmental and social standards.

Backward linkages to local suppliers
The project will also have important backward linkages to suppliers to the plant, many of which are still state-owned. Suppliers wanting to supply the Client will have to increase production efficiency, meet environmental standards, etc, thus delivering further transition impact.

Demonstration effects
As the Project represents the largest greenfield manufacturing FDI in Belarus to date, the demonstration effect of a successful investment can reach beyond the wood processing sector, and possibly encourage further manufacturing FDI in the country in general.

The Client

IOOO VMG Industry, a company newly set up by UAB VAKARU MEDIENOS GRUPE (‘VMG’).
VMG is a leading Lithuanian particleboard and furniture producer with IKEA as trading partner.

EBRD Finance

Up to €26.00 million comprising of a €19.5 million senior loan and a €6.5 million subordinated loan.

Project Cost

€ 76 million.

Environmental Impact

Categorised B (2008). The construction and operation of new particleboard and furniture production facilities is associated with a limited number of potential adverse future environmental and social impacts that, due to the nature of the chosen production techniques as well as size and location of the facilities, are site-specific and readily identified and mitigated.

The Environmental and Social Due Diligence (ESDD) consisted of a corporate audit of the Parent Company (VMG), focusing on its management systems to review institutional capacity to implement the Bank's Performance Requirements (PR's), and an environmental and social analysis of the proposed investment in Belarus.

The ESDD was undertaken through questionnaires, review of relevant documentation and the Bank’s environmental specialists’ visits to the site of the future plant in Mogilev, meetings with Belarusian regulatory authorities as well as visits to VMG production facilities in Lithuania, including a reference particleboard plant in Kazlu Ruda.

VMG’s Lithuanian operations are well managed with a good environmental, health and safety (EHS) system in place based on the IKEA’s approach to addressing environmental issues, working conditions and safety (IWAY), including specifically assigned to the facility technicians from IKEA, regular audits and reporting.

The key environmental issues at current facilities in Lithuania are associated with air emissions (dust, formaldehyde, other VOCs), and the Company is addressing them, for example, by installing Wet Electrostatic Precipitator (WESP) at its particleboard plant in Klaipeda to control dust and formaldehyde emissions into atmosphere.

The Environmental and Social Analysis showed that the land plot chosen for construction is located in an industrial area of the city and does not have any historic contamination, as confirmed by the authorities of Free Economic Zone that owns the land plot. The construction of the new facilities in Belarus will mainly be associated with noise, dust, traffic disturbance issues and does not require an OVOS (local EIA) under Belarusian law because the production output is not going to exceed the regulatory threshold limits. However, the Project will be a subject to a formal environmental permitting process as part of construction expertise which will include environmental review based on the ‘ecological passport of the Project’ to be prepared by the Company. The Bank will monitor the environmental permitting process for the plant.

The plant design includes a number of state-of-the-art technology features, such as a closed loop water system in logs conditioning chambers (not pounds) for plywood/bed slats production, air emissions control including wet scrubbers, bag filters and cyclones to reduce VOC and dust emissions, as well as recovery of wood waste with bag filters cyclones-cancel to be used as fuel in a biomass boiler and in a dryer boiler of chipboard production

The key issues for the operation of the plants include controlling air emissions, implementing waste management measures based on waste minimisation and recycling as well as implementing wood procurement procedures ensuring that the plant’s wood raw material is supplied from legal and sustainably managed forestry sources.

To ensure the implementation of adequate mitigation measures, an Environmental and Social Action Plan (ESAP) was prepared based on the ESDD and agreed with the Client. As part of the ESAP the Company agreed by 2011 to establish a wood procurement policy at Group’s level and conduct wood supplier study for identifying and selecting reliable and responsible wood suppliers for operations in Belarus to ensure that the wood supplied to the mill is of legal and sustainable origin. To maintain stakeholder engagement the VMG Group will periodically inform local public about environment, health and safety initiatives at the Company and communicate relevant information about the new plant in Belarus. Among other actions, within two years of plant’s commissioning VMG will undertake an Assessment of plant’s environmental performance in Belarus to benchmark operations and facilities against all relevant EU regulations, BAT Guidelines for Particleboard manufacturing and IFC EHS Guidelines for Sawmilling and Wood Manufacturing.

The Company will provide the Bank with annual environmental and social reports (AESR), including updates on the ESAP implementation, and notification on any material accidents or incidents. The Bank will evaluate the Project’s environmental and social performance in accordance with the Bank’s PR’s through reviewing the Client reporting and undertake periodic monitoring visits to.

Technical Cooperation

An Energy Efficiency Audit has been performed under the Energy Efficiency Programme for the Corporate Sector.

Company Contact

VMG Contact : Egidijus Mockus
Tel: +37069811262;
Fax: +370 46 469595
E-mail: egidijus.mockus@mediena.lt

Business opportunities

For business opportunities or procurement, contact the client company.

For state-sector projects, visit EBRD Procurement: Tel: +44 20 7338 6794
Email: procurement@ebrd.com

General enquiries

EBRD project enquiries not related to procurement:
Tel: +44 20 7338 7168
Email: projectenquiries@ebrd.com

Public Information Policy (PIP)

The PIP sets out how the EBRD discloses information and consults with its stakeholders so as to promote better awareness and understanding of its strategies, policies and operations. Please visit the Public Information Policy page below to find out how to request a Public Sector Board Report.
Text of the PIP

Project Complaint Mechanism (PCM)

The Project Complaint Mechanism (PCM) is the EBRD's accountability mechanism. It provides an opportunity for an independent review of complaints from individuals and organisations concerning EBRD-financed projects which are alleged to have caused, or are likely to cause, environmental and/or social harm.

Please visit the Project Complaint Mechanism page to find information about how to submit a complaint. The PCM Officer (pcm@ebrd.com) is available to answer any questions you may have regarding the submission of a complaint and criteria for registration and eligibility, in accordance with the PCM Rules of Procedure.